Tax audits

An audit usually begins with a letter that is polite, specific and short: a list of years, a list of questions, a date for a first meeting. Nothing in it suggests that anything is wrong, and most businesses treat it as an administrative chore, handed to the bookkeeper and answered piece by piece. The difficulty is that each answer becomes part of a record the inspector will later rely on, and an explanation given casually in the first week is hard to improve on in the sixth.

An audit is therefore a procedure with its own rights and obligations on both sides, and the way it is conducted often matters as much as the figures it examines. It turns on what the inspector may see, who answers for the company, and how the conclusions are reached and agreed:

• the rules on how an audit is opened, what notice must be given and which years and taxes it may cover;
• the rules on an inspector’s access to premises, accounting systems and electronic records, and on the conduct of a visit on site;
• the rules on the books and supporting documents a business must keep, in what form and for how long;
• the rules on professional privilege, and on correspondence with advisers that an inspector may not demand;
• the rules on questioning directors and staff, and on who may speak on the company’s behalf;
• the rules on the notice of proposed adjustments, the reasons it must give and the time allowed to reply;
• the rules on estimated assessments where the records are judged incomplete or unreliable;
• the rules on accepting an adjustment in part, and on what an agreement reached at the close of an audit means for later years.

Our lawyers can support you with this.